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2010

Supreme Court accepts four new cases

Madison, Wisconsin -
March 16, 2010

The Wisconsin Supreme Court has voted to accept four new cases. The Court also acted to deny review in a number of cases. The case numbers, issues, and counties of origin are listed below. Court of Appeals’ opinions/certification memos available online for the newly accepted cases are hyperlinked.

Some background: The plaintiff, Wanda Brethorst, was a passenger in a vehicle operated by her husband when an uninsured motorist pulled out onto the highway in front of the Brethorst vehicle and struck it. Brethorst tendered a claim for her injuries to her auto liability insurer, Allstate, under the policy's uninsured motorist (UM) coverage. The parties tried to settle the matter but negotiations broke down. Brethorst sued Allstate for claims arising out of her UM coverage and for bad faith in handling her UM claim.

The trial court denied Allstate’s motion to bifurcate the bad faith claim from her claim for benefits and to stay proceedings until the claim for benefits could be resolved. Brethorst opposed the motion, asserting that the only cause of action set forth in her complaint was one for bad faith and that no claim to bifurcate or stay could exist.

Following a hearing, the trial court agreed with Brethorst and denied Allstate's motion to bifurcate and stay. Allstate petitioned for leave to appeal. The Court of Appeals granted Allstate's petition, leading to this certification.

The District II Court of Appeals asks the Supreme Court to review the following issues:

Whether a finding of wrongful denial of benefits is a condition precedent to proceeding with discovery in a first-party bad faith claim based on wrongful denial of benefits?

In a first-party bad faith claim, if a finding of wrongful denial of benefits is a condition precedent to proceeding with bad faith discovery, does the trial court err if it refuses to grant the insurance company's motion to bifurcate the issues for discovery?

Do the same policy considerations that make it error for the trial court to refuse a motion to bifurcate simultaneous bad faith and breach of contract claims—avoiding undue prejudice to the insurance company, avoiding jury confusion and promoting settlement—make it error to refuse a motion to bifurcate the same two issues when the insured's only claim is bad faith?

From Racine County.

2008AP3144-CR State v. Gerard W. Carter
In this drunken driving case, the Supreme Court has been asked to review whether out-of-state offenses should be “counted” for sentence enhancement purposes in Wisconsin, and if so, how.

Some background: Gerard Carter was charged with operating while under the influence of an intoxicant (OWI) and operating with a prohibited alcohol concentration (PAC), both as fourth offenses. The state alleged that Carter had three countable prior offenses, all from Illinois.

Specifically, the state alleged two violations of Illinois' zero tolerance law, 625 Ill. Comp. Stat. Ann. 11-501.08, and one violation of Illinois' OWI law, 625 Ill. Comp. Stat. Ann. 11-501(a)(2). Carter pled guilty to OWI and the state agreed to dismiss but read in the PAC offense. Carter disputed that his current offense was a fourth offense, arguing that the two Illinois' zero tolerance suspensions cannot be counted for sentence enhancement purposes in Wisconsin.

The circuit court concluded that Carter's two Illinois' zero tolerance violations did count as prior “convictions” under Wis. Stat. § 343.307(1)(d) as defined by § 340.01(9r), because they were convictions under the law of another jurisdiction that prohibits a person from refusing chemical testing or using a motor vehicle with a prohibited alcohol concentration. The court therefore imposed judgment of conviction and sentence for an OWI as a fourth offense.

However, the state notes that in a 2008 one-judge, unpublished opinion, the Court of Appeals addressed the same question and reached the opposite conclusion. See State v. Aran Esposito, No. 2007AP2044-CR (Wis. Ct. App. Dist. II, March 12, 2008).

The Supreme Court is expected to interpret the statutes in light of Machgan, Esposito, and other cases addressing similar questions about how out-of-state OWI offenses may apply to sentencing.

From Walworth County. Justice N. Patrick Crooks did not participate.

2008AP1845 Town Bank v. City Real Estate Development
In this case, the the Supreme Court is asked to interpret the meaning of a lending contract between a lender and the developer of a condominium project at the “Wisconsin Tower” property in downtown Milwaukee.

Some background: The underlying facts are not in dispute. On May 27, 2004, Town Bank issued a loan commitment letter indicating it would provide City Real Estate Development, LLC, with financing for its condominium project in the total amount of $9 million in two phases: (1) $2.5 million initial financing for the acquisition of a Milwaukee office building and completion of demolition, engineering, asbestos removal and marketing (Phase I), and (2) $6.5 million for the construction of condominium units as dictated by pre-sales (Phase II).

The closing of the loan was contingent upon terms and conditions, which included a first mortgage on the subject property, and a requirement that City Real Estate would contribute $900,000 in equity capital prior to closing.

“In order to be effective in any regard,” the letter was to be properly executed and returned to the bank by June 11, 2004, and Town Bank had the sole option of terminating the agreement if not executed by June 25, 2004.

After the $2.5 million loan was issued, Town Bank and City Real Estate continued negotiating the financing regarding the construction phase. Ultimately, on Nov. 19 and Dec. 28, 2004, Town Bank informed City Real Estate that it would not proceed with the Phase II portion of the loan contemplated in the loan commitment letter.

The central question is whether the loan agreement is the only evidence to be used in determining whether the loan phases are integrated, or as City Real Estate contends, if extrinsic evidence, such as the commitment letter, also may be considered under Wisconsin law.

Town Bank sought a declaration that it had fully performed its obligations under the $2.5 short-term loan agreement and that any and all of its loan obligations to City Real Estate were set forth in the term credit agreement accompanying the loan. City Real Estate counterclaimed, arguing that Town Bank breached its contract to finance the Phase II of the loan commitment letter contemplating the additional $6.5 million in construction financing, thus causing delay damages.

The trial court denied Town Bank's summary judgment motion, concluding that the term credit agreement was ambiguous as to whether it was a stand-alone transaction. The Court of Appeals concluded the circuit court erroneously denied Town Bank summary judgment on its claim that the bank had fully performed its loan obligations to City Real Estate.

The Court of Appeals agreed with Town Bank that the parol evidence rule barred the introduction into evidence of the terms of the bank's loan commitment letter to construe the meaning of its lending contract with City Real Estate. The Court of Appeals further concluded that even if the loan commitment letter were admissible, City Real Estate failed to meet its conditions, thereby repudiating the loan agreement.

A decision by the Supreme Court would clarify the interpretation financing agreement integration clauses.

From Waukesha County.

2008AP322 Nestle USA, Inc. v. Wisconsin Dept. of Revenue (DOR) This case involves a dispute over the assessment of an infant formula production facility in the Eau Claire area. Nestle USA asks the Supreme Court to review methods of assessment contemplated by § 70.32(1), particularly with regard to the use of the cost approach in assessing special-use facilities, and the definition and role of “functional obsolescence.”

Some background: The underlying facts are not disputed. The dispute involves the 2003 and 2004 assessments of the plant Nestle owns and operates to produce infant formula. The DOR assessed the plant at $10,915,000 for those two years. Nestle's appraiser determined the value to be $3,550,000. The difference between the two values is primarily due to the different appraiser's evaluations of “functional obsolescence.”

As noted by the Court of Appeals, functional obsolescence is defined in the assessment manual as “loss in value, due to a lack of or excessive utility.” The Court of Appeals found that functional obsolescence occurs over time because of changing needs, technology, design, promotion/marketing, and cost/construction, according to the Court of Appeals.

The Court of Appeals affirmed a decision of the Wisconsin Tax Appeals Commission upholding the DOR valuation

The DOR assessor rejected a comparable sales approach after examining the sales of other less specialized food processing plants, concluding they were not “reasonably comparable” to Nestle's plant because they lacked the specialized features to meet FDA regulations for the production of powdered infant formula. Due to the special features, he concluded conversion of the plant to a general food processing facility would not be “financially feasible” without “enormous capital investment.”

According to Nestle's appraiser, under professionally accepted appraisal practices mandated by Wis. Stat. § 70.32(1), the threshold consideration is to determine the highest and best use defined as the “reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.”

Nestle's appraiser concluded that because the highest and best use is purely market driven, and there is no evidence of any potential sale of any special purpose powdered infant formula plant, the highest and best use of the plant was a food processing plant. He considered sales of seven Wisconsin food processing plants and, after an analysis contained in his report, derived a value based on comparable sales of $3,590,000.

The commission concluded Nestle had failed to rebut the presumption of correctness of the DOR's assessment. It further concluded that the super adequacies of the plant could not be considered as functionally obsolete under the cost approach.

In reviewing the Tax Appeals Commission, the Court of Appeals essentially concluded that because of the limited market for the facility, the DOR's assessor was entitled to use a cost approach that omits any consideration of functional obsolescence. The DOR's assessor said that because the plant was not a typical plant but rather built for a specialized use, “there can be no functional obsolescence.”

Nestle presents two issues: (1) whether the Tax Appeals Commission contradicted settled law requiring tax assessments to be based on actual market evidence, when it [implicitly] held that Wis. Stat. § 70.32(1) permits the assessor to create a hypothetical buyer to assess a special purpose manufacturing plant for which there was no actual market; and (2) whether the commission contradicted decisions holding that property cannot be assessed at a value intrinsic to the present owner, when it assessed Nestle's facility based on its unique value to the present owner, rather than on market value.

A decision by the Supreme Court would clarify the standards governing the use of the cost approach in assessing special use facilities.

From Dane County.

Review denied: The Supreme Court denied review in the following cases. Supreme Court review is a matter of judicial discretion, not of right, and will be granted only when special and important reasons are presented. As the state’s law-developing court, the Supreme Court exercises its discretion to consider for review only those cases that fit certain criteria, but these criteria neither control nor fully measure the Court’s discretion (see Wis. Stat. (rule) § 809.62).